Jackie Zach
October 25, 2024
In this episode of the Tough Love for Business podcast, Jackie Zach and Mike McKay discuss the critical role of cash in fueling fast business growth. They emphasize the importance of accessing other people’s money (OPM) to sustain expansion, as relying solely on personal funds can hinder progress. Mike highlights that money attracts more money and cites examples where strategic investments helped businesses recoup costs and increase profitability. He also stresses that the fear of debt often holds entrepreneurs back, even though debt, when managed wisely, is essential for growth.
Mike also explores the misconception that bankruptcy is a business death sentence, using stories of successful entrepreneurs like Steve Jobs and Richard Branson to illustrate how setbacks can be overcome. He argues that the worst-case financial scenarios, such as needing to find a job, are not as catastrophic as many business owners fear. Ultimately, embracing capital, whether through borrowing or external investment, is key to scaling a business quickly. They conclude by teasing the next episode’s discussion on good versus bad debt.
Would you like someone to work through the 5 Ways for your business? Take advantage of a complimentary business strategy session to discover the opportunities in your business! https://actioncoachwi.com/podcast-ask-a-question-complimentary-session/
Podcast Transcript:
Jackie Zach: Welcome back to the…
Mike McKay: Tough Love for Business podcast.
Jackie: Yep, I’m Jackie Zach, here with my talented co-host, Mike McKay. Our topic today is how fast growth requires cash. We discussed this in our team meeting regarding some clients who are growing rapidly but suddenly find themselves running out of cash.
Mike: Yes, we’ve experienced this ourselves several years in a row. There have been a couple of “blinding flash of the obvious” moments—whatever you want to call them—especially for those going through fast growth. One crucial insight is OPM: other people’s money. Many business owners fear owing money. They worry about being unable to pay it back or the possibility of losing their homes. However, if you want your organization to grow, you need access to money. The purpose of money is to generate more money.
Jackie: That’s an interesting perspective.
Mike: Indeed! The philosophy around money suggests that it begets more money. It thrives on flow and attracts more of itself. This is the essence of the Law of Attraction: if you think you’re poor, then you will be. Conversely, if you believe in an unlimited supply of money, it will attract more. For instance, a client of mine was once anxious about purchasing a piece of equipment that cost $125,000, fearing the debt it would incur. But that equipment was highly in demand. Even if they had to sell it later, they could still recoup about $110,000, as that’s the market rate for a used version.
Jackie: Right.
Mike: So it’s important to clarify what is truly at risk. We also have a fantastic tool called the Five Ways, which can demonstrate how to profit from any investment. In that case, they only needed to bill out for eight hours a month. The new equipment would enable the company that was backlogged for six months to complete projects faster, ultimately increasing profitability and saving clients money. It took them months to decide whether to lease or finance this equipment, but within two weeks of the purchase, they had already recouped a quarter of the investment in profit.
Jackie: That’s impressive!
Mike: I mentioned Jeff Bezos and Amazon in the last episode. There’s no way a company like Amazon could have grown without leveraging other people’s money. Think about all the warehouses they built. In the public market, you sell parts of the company to shareholders to raise capital, then borrow money to expand. Very few large companies operate without any debt.
Jackie: That’s a valid point.
Mike: So, the first challenge of fast growth is determining if you’re willing to borrow money or accept investment. You need to do the math to ensure you can cover the debt payments and still make a profit. There’s no way to achieve fast growth without using capital. You need to invest in marketing, sales, and the staff necessary to execute your plans. You can find yourself stuck in a cash conversion cycle, where you offer customers 30-day payment terms but need to pay your suppliers in 15 days. These issues can be managed if you’re open to using money intelligently.
Jackie: Absolutely. You discussed the five ways earlier. There was a client who went bankrupt after using their own cash.
Mike: Right, and it was heartbreaking. Access to money is critical for making informed decisions to grow your business. If you adopt a bootstrap mentality, you might believe you don’t need anyone else’s help, but nothing great has ever been built without external investment. Every major company, like Amazon, Apple, Facebook, and Google, has sold significant portions of their business to investors. While this creates wealth for many, it also means they no longer own 100% of their businesses.
Jackie: That’s true.
Mike: The notion of relying solely on your own money can be limiting. The game of business has rules, one of which is that bankruptcy is not a death sentence. Some of the most successful people have experienced bankruptcy. It’s just a tool in the business world.
Jackie: That’s a refreshing perspective.
Mike: The fear surrounding money can feel unnatural. We sometimes need to sit down with clients and explore the worst-case scenario. If your worst fear materializes and you generate no revenue, what will you do? Most say they’ll get a job. Is that going to kill you? No? Great! The fear of financial ruin isn’t as daunting as it seems. In the U.S., anyone can find a job, and recovering from bankruptcy is possible. I’m not advocating for bankruptcy, but the worst-case scenarios in business usually aren’t fatal.
Jackie: Exactly!
Mike: Consider the case of Steve Jobs. He was ousted from Apple twice but later returned to build an iconic company. Richard Branson has been involved in countless lawsuits, yet he continues to thrive. Civil lawsuits are part of the game, and navigating them typically requires professional assistance. Ultimately, if you face a loss, you can manage the financial impact.
Jackie: That’s a smart approach.
Mike: The bottom line is this: money fuels growth. You can either fear it or embrace it. There’s a massive flow of money in the world, and tapping into other people’s funds is often necessary for rapid growth because it is indeed cash-intensive.
Jackie: Absolutely. Next time, we’ll discuss the difference between good debt and bad debt. Until then, remember you’re a professional business owner—now go kick some ass!